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What is the appropriate revenue recognition procedure for upfront payments received in a contract with a...

What is the appropriate revenue recognition procedure for upfront payments received in a contract with a customer?

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Answer #1

What is the appropriate revenue recognition procedure for upfront payments received in a contract with a customer?

Revenue recognition is an accounting method for contracts and upfront payments, situations where the customer pays in full before actually receiving the whole service.

For Example, Receive $20000 in advance

Treat $20000 as unearned revenue(current liability-Credit)

So the journal entry is

Dr Bank   $20000

Cr unearned revenue   $20000

Assume half of the service performed during the first year of contract ie $10000

Dr unearned revenue    $10000

Cr service revenue                      10000

Transfer the revenue earned to income statement

Remaining $ 10000 will be unearned revenue(current liability in balancesheet

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